Magazine Article | June 21, 2006

Saving Merchandise Space

Source: Innovative Retail Technologies

On planograms, U.S. retailers emulate European counterparts.

Written by Shaun Bossons, Executive Vice President of Galleria Retail Technology Solutions  

Integrated Solutions For Retailers, July 2006

Space constraints, improving customer experience and maintaining high levels of performance are many of the top challenges with which North American retailers report they must now contend. A glimpse overseas reveals that European retailers, especially those in the United Kingdom, have encountered similar situations of space constraint for many years. A handful of U.S. retailers are now learning that they, too, can benefit from the decisions of the most successful European retailers.

Maintain The Experience, Hold The Line On Expenses
Because the majority of retailers invests first in strategies aimed at improving the customer shopping experience, stores are starting to allocate greater levels of space to more aesthetic departments, such as fresh, deli, and in-store promotions. The result is increased pressure on the center-store categories, those that substantially contribute to the retailers’ financial performance.

The demands on center-store space allocation have created a store-within-a-store situation, meaning that optimization of this space is now a key objective for U.S. retailers. For years, UK retailers felt the same squeeze without the luxury of being able to build a new store or increase existing store size. The key to success was achieving center-store space optimization while continuing to provide a positive shopping experience without increasing resource expenditure.  

According to Martin Cook, former UK business systems director at Safeway plc., the in-store sales area from a retailer’s point of view is about maximizing every square inch of space.

Optimize Space Granularly
To combat this growing concern and use space more efficiently, there is an excellent opportunity for U.S. retailers to take advantage of the proven technology and processes used by large European retailers, such as Tesco in the United Kingdom.

Such technology manages space optimization at a far more granular level to accurately understand and satisfy local customer demand.  Upon adoption, the retailer will start to achieve strong inventory reductions for poorly performing products. This leads to increased available space for high-selling products and opportunities for space re-allocation to adjacent under-spaced categories.  The result is improved availability of key lines and reduced markdown and wastage of poor performers.

The Planogram Problem
Achieving these major benefits means retailers will experience a substantial increase in the number of required planograms, an influx that is impossible to manage manually. Therefore, the U.S. retailers who adopt this technology now and begin to automate planogram production at a more granular level will be able to continue to improve the shopping experience, but not at the expense of reduced availability and high inventory costs.

Like their European counterparts, U.S. retailers should partner with technology solution providers that can aid with this adoption and build their understanding of how to optimize space most efficiently.